TDY

• Overall Quarterly Performance

  • Q2 2026 delivered record quarterly orders, sales, and operating profit in Teledyne's history, with total sales up 9.8% year-over-year and non-GAAP earnings up 20.8%
  • Orders have exceeded sales for 11 consecutive quarters, ending the quarter with $5 billion in funded backlog, with a consolidated book-to-bill ratio of 1.23x
  • Operating cash flow was $315.2 million (up from $226.6 million in Q2 2025), and free cash flow was $284.7 million (up from $196.3 million in Q2 2025), driven by stronger operating results and lower income tax payments
  • Net leverage ended the quarter at 1.1x, the lowest level in six years, giving the firm substantial flexibility for acquisitions
  • Approximately 90% of current earnings come from businesses Teledyne acquired over the past 25 years

• Portfolio and Strategic Positioning

  • Teledyne maintains a broad portfolio of precision sensors and vertically integrated platforms spanning from space to deep sea, with core capabilities across electromagnetic and acoustic spectrums that serve multiple end markets including defense, space, healthcare, energy, and industrial safety
  • Core technologies are both sold as merchant components and integrated into the firm's own proprietary subsystems and platforms, including unmanned aerial systems, counter-UAS systems, unmanned surface vessels, and fully autonomous underwater vehicles
  • M&A activity remains a core growth driver: the firm has spent over $1 billion on acquisitions in the past two years, maintains ample acquisition capacity (~$4 billion in total capability), and will not overpay for targets that demand unreasonable valuations

• Operational Updates

  • Organic growth is led by digital imaging, particularly for infrared detectors and systems for space, unmanned systems, and counter-UAS applications
  • CapEx is planned to increase 30% year-over-year in 2026 to expand capacity for high-demand defense products, with additional government investment in manufacturing upgrades for missile and munitions-related production
  • Recently acquired businesses (Keoptic, DD Scientific) are delivering strong organic growth and margin improvement, with cross-selling opportunities expanding Teledyne's addressable market

• Full-year 2026 revenue guidance was upgraded by $120 million from the April 2026 forecast, bringing full-year expected revenue to over $6.53 billion, representing ~7% year-over-year growth, an improvement of 200 basis points from the prior forecast
• Full-year 2026 non-GAAP earnings per share guidance was upgraded by 55 cents at the midpoint of the prior range to reflect stronger-than-expected organic growth
• Third quarter 2026 GAAP earnings per share is guided to a range of $5.10 to $5.25 per share
• Commercial short-cycle businesses, previously expected to deliver flat to low single-digit growth, are now expected to deliver mid-single-digit full-year growth, as previously headwinded markets (industrial inspection, healthcare) have begun to inflect positively
• Defense full-year 2026 sales are expected to grow at a high single-digit rate, with pockets of double-digit growth, driven by accelerating orders and sales
• Overall full-year 2026 company operating margin is expected to improve 56 basis points year-over-year, maintaining management's prior margin outlook despite higher revenue; if revenue exceeds current projections, margins will also improve
• The current 7% total company growth forecast breaks down to 7.5% for digital imaging, 5.7% for instrumentation, 7.2% for aerospace and defense electronics, and 5.6% for engineered systems, with management noting it maintains a cautious outlook and expects potential upside to these numbers

1. Digital Imaging: Q2 2026 sales increased 12.7% year-over-year (11.9% organic growth). Growth was balanced across defense and commercial end markets: infrared detector sales for space-based imaging grew over 20%, and infrared subsystems/cameras for unmanned systems, border security and drone defense also grew over 20%. Commercial end markets (industrial/scientific vision sensors, healthcare X-ray products, commercial thermography, maritime navigation electronics, MEMS) all posted growth. Non-GAAP operating margin reached 25%, up 353 basis points year-over-year. This segment contributes ~29% of total full-year expected 2026 revenue, with projected full-year 2026 growth of 7.5%.
2. Instrumentation (marine, environmental, test and measurement): Q2 2026 sales increased 5.5% year-over-year. Defense-related marine instrument sales (unmanned subsea vehicles, submarine interconnects) grew ~20%, offshore energy instrumentation grew modestly, environmental instruments grew 6% (driven by the January 2026 acquisition of DD Scientific and organic gas/flame detection growth, partially offset by lower lab/life sciences sales), and electronic test and measurement systems grew 4.3%. Non-GAAP operating margin decreased year-over-year due to lower-margin autonomous underwater vehicle sales mix, but increased 160 basis points sequentially. This segment contributes ~23% of total full-year expected 2026 revenue, with projected full-year 2026 growth of 5.7%.
3. Aerospace and Defense Electronics: Q2 2026 sales increased 8.2% year-over-year, with broad-based organic growth led by the 2025 acquisition Keoptic. Commercial aerospace sales increased slightly despite delays in large avionics retrofit projects. Non-GAAP operating margin increased 11 basis points year-over-year, even with a higher mix of lower-margin defense electronics relative to commercial avionics. This segment contributes ~28% of total full-year expected 2026 revenue, with projected full-year 2026 growth of 7.2%.
4. Engineered Systems: Q2 2026 revenue increased 8.4% year-over-year. Non-GAAP operating margin increased 166 basis points year-over-year, driven by higher sales and execution for commercial nuclear power and U.S. missile defense programs. This segment contributes ~20% of total full-year expected 2026 revenue, with projected full-year 2026 growth of 5.6%.

• Supply chain constraints for key raw materials: over $1 billion of annual Teledyne revenue depends on germanium and rare earth magnet supplies; while the firm has invested in mitigation efforts (such as germanium scrap recycling programs), these supply risks contribute to management's cautious guidance
• Volatility in oil prices creates uncertainty for energy-related end market demand
• Proposed new tariffs create policy uncertainty, with a history of proposed tariffs being withdrawn but ongoing risk of market disruption
• Higher mix of lower-margin defense products relative to higher-margin commercial aviation products creates some margin pressure that is being actively managed
• There is ongoing uncertainty around the timing of market adoption for new high-growth products such as next-generation protocol test equipment, which can create near-term revenue volatility

Q: Amit Mehrotra (UBS) asked for an update on 2026 growth for unmanned and space businesses relative to prior 10% growth targets, and breakdown of Q2 orders between short-term book-and-ship and multi-year programs, and what backlog growth implies for 2027. / A: Management confirmed that both unmanned and space businesses are on track to grow greater than 10% in 2026, meeting the prior targets. Q2 overall book-to-bill was 1.23x, with digital imaging over 1.4x; most defense order growth is for multi-year programs, but the $120 million upward 2026 revenue revision is broadly distributed across both defense and commercial. Management did not have an exact split of short vs long-term orders available on the call.

Q: John Godden (Citi) asked for the current size of Teledyne's missiles and munitions business, and opportunities related to U.S. MAC framework agreements and medium-term growth. / A: Management stated that direct missiles and munitions revenue (microwave and energetic components/subsystems) has a $200-$250 million annual run rate, with associated complementary programs in electronic warfare and radar bringing total defense-related sales to 30-35% of annual company revenue. Teledyne supplies components for major programs including AMRAAM, PAC-3, Hellfire, Javelin, and new hypersonic programs. Strong global demand has led to government investment in manufacturing capacity upgrades, including a $30 million government commitment to expand capabilities for this segment, with growing demand from both U.S. and European customers like MBDA.

Q: Adam Samuelson (Jefferies) asked for breakdown of margin drivers in Q2, specifically the impact of tariff refunds, and how margin outlooks have changed from prior quarters. / A: Management explained that total tariff benefit was ~$10 million in Q2, almost entirely in digital imaging, contributing ~120 basis points of the segment's 353 basis points year-over-year margin improvement. The tariff benefit was nearly offset by higher R&D spending, inventory reserves, and other accruals. Overall company margin is projected to improve 56 basis points full-year 2026, matching prior outlooks, with upside to margins if revenue exceeds current projections.

Q: Ed Maggion (B&P Paribas) asked for an update on M&A pipeline, given low leverage and prior comments that acquisition valuations were too high. / A: Management confirmed net leverage is 1.1x, with ~$1.2 billion in untapped credit facilities and up to ~$4 billion in total acquisition capacity, with ample flexibility to complete deals. Teledyne is actively pursuing both small and mid-sized (up to ~$1 billion) acquisitions across both defense and commercial segments, having spent over $1 billion on acquisitions in the past two years. However, the firm will not pursue deals where buyers are willing to pay 30-33% above what management views as reasonable valuations, and will walk away from overpriced opportunities.

Q: Joe Giordano (TD Cowen) asked why full-year guidance implies weak Q4 2026 growth, and how much of this is conservatism vs. fundamental headwinds. / A: Management noted there are slightly difficult year-over-year comparisons for Q4 2026 especially in digital imaging, contributing to the conservative guidance. There is potential upside of $30-$40 million in revenue across businesses if current demand trends hold. The conservatism is driven by ongoing supply chain risks for key materials and policy uncertainty around tariffs and oil prices, not underlying demand deceleration; short-cycle commercial demand is currently tracking better than prior forecasts.